The 2013 Value Creators Report: Unlocking New Sources … · The 2013 Value Creators Report Unlocking New Sources of Value Creation. ... used a focus on total shareholder return to

The 2013 Value Creators Report

Unlocking New Sources of Value Creation

The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep in sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 78 offices in 43 countries. For more information, please visit bcg.com.

The BCG Game-Changing ProgramWe are living in an age of accelerating change. The old ways are rapidly becoming obsolete, and new opportunities are opening up. It is clear that the game is changing. At The Boston Consulting Group, we are optimistic: we think that the fundamental drivers of growth are stronger than they have ever been before. But to capitalize on this trend, leaders need to be proactive, to challenge the status quo, to make bold moves—they need to change the game, too. The decisions they make now, and over the next ten years, will have an extraordinary and enduring impact on their own fortunes as well as on those of their organizations, the global economy, and society at large. To help leaders and to mark our fiftieth anniversary, BCG is pulling together the best ideas, insights, and ways to win—to own the future. This publication is part of that endeavor.

Inside Front Cover illustration horizontal: 99mm x 73mm

ILLUSTRATION IS REVERSED, BLACK AND WHITE WITH GREEN

SCREEN

TOGGLE LAYERS TO SELECT APPROPRIATE IMAGE

ORIENTATION AND SIZE

UNloCkiNg New SoUrCeS of ValUe CreatioN

September 2013 | The Boston Consulting Group

The 2013 Value Creators Report

GeRRy HAnsell

JeFF KOTzen

eRIC Olsen

FRAnK PlAsCHKe

HAdy FARAG

2 | Unlocking New Sources of Value Creation

CoNteNtS

3 PREFACE

4 THE GREAT DISCONNECTUneven Economic GrowthThe Impact of Central Bank PoliciesRoom to Rise?The Need to Step Out from the Pack

9 HOW VALUE PATTERNS SHAPE PRIORITIES FOR VALUE CREATION

Four Factors Underlying Value PatternsLululemon: Navigating the High Wire of High GrowthHyundai’s “Deep Value” TurnaroundGrainger: Maintaining the Strengths of a High-Value Brand

19 VF Corporation: tSr-Led tranSFormationCreating a New Growth StrategyConvincing the Equity MarketsImproving the MultipleTransforming the Portfolio“Getting to $200 per Share”

26 APPENDIx: THE 2013 VALUE CREATORS RANKINGSGlobal RankingsIndustry Rankings

43 FOR FURTHER READING

44 NOTE TO THE READER

The Boston Consulting Group | 3

Unlocking New Sources of Value Creation is the fifteenth annual report in the Value Creators series published by The Boston

Consulting Group. each year, we offer commentary on trends in the global economy and world capital markets, share BCG’s latest re-search and thinking on value creation, describe our experiences working with clients to materially improve their value-creation performance, and publish detailed empirical rankings of the perfor-mance of the world’s top value creators.

This year’s report offers four different perspectives on successful val-ue creation. We begin by analyzing the recent disconnect between un-even global economic growth and buoyant global equity markets. Next, we describe how senior executives can use value patterns, a con-cept we introduced in last year’s report, to identify the most appropri-ate “unlocks” to create new value. We follow with a detailed case study of how one BCG client, the branded apparel company VF, has used a focus on total shareholder return to transform the company’s business, accelerate its growth to the point that today it is the world’s largest apparel company, and deliver shareholder value at the top end of its peer group. Finally, we conclude with our annual rankings of the top ten value creators worldwide and in 25 industries for the five-year period from 2008 through 2012.

prefaCe


the great DiSCoNNeCt

Think of it as “the great disconnect.” Global economic growth continues to be

slow and highly uneven. And yet, over the past 18 months, global equity markets have seen their most consistent expansion since the financial crisis of 2008. in 2012, the total shareholder return (TSR) of the MSCI All Country World Investable Market Index was approximately 16.5 percent. For the first half of 2013, it was 9.8 percent.

What are the implications of this disconnect between economic performance and market performance for how companies should ap-proach value creation in the years to come? That is the focus of this year’s Value Creators report.

Uneven economic growthTo be sure, some of the recent market gains reflect real improvements in global economic growth. Earlier this year, we pointed out that the relatively strong performance of tradi-tional economic engines—such as automo-biles and parts, household goods and home construction, construction and materials, and general industrials—in 2012 were hopeful signs that global economic recovery was be-coming more sustainable.1 Rapid growth has continued in some emerging markets. And there has been slow but increasingly steady growth in the U.S. and Japan, with the two countries achieving annualized first-quarter

growth of 2.5 percent and 2.8 percent, respec-tively, in 2013. This growth is finally having a material impact on unemployment. In the U.S., for example, the unemployment rate dropped from 10 percent in October 2009 to 7.6 percent in May 2013.

But the improvement in global economic per-formance has been highly uneven. At the same time that the U.S. and Japan have been doing somewhat better, Europe has been mired in recession. In annualized terms, the Eurozone economy contracted by about 0.8 percent in the first quarter of 2013. And al-though emerging markets are on track to grow about 5 percent in 2013, that is the slowest expansion in a decade, except for that of the post-financial-crisis economy of 2009.

the impact of Central Bank policiesFar more important to recent market gains have been the monetary policies adopted by the world’s central banks in an effort to boost economic growth. Central banks have kept in-terest rates low in order to encourage borrow-ing and investment, and low interest rates have driven down yields on financial assets such as bonds. With interest rates on risk-free government bonds approaching zero, equities have become a relatively more attractive as-set class, driving stock prices higher. We esti-mate that improvements in valuation multi-


ples alone accounted for roughly 13 to 14 percentage points of the average TSR of 16.5 percent in 2012.

Exhibit 1 puts this phenomenon into histori-cal context. The graph compares the quarter-by-quarter yield of equities (the ratio of earn-ings to price) with that of the U.S. Treasury’s benchmark ten-year bond from the first quar-ter of 1993 through the second quarter of 2013. It shows that for much of this period, the yields of these two asset classes remained close to each other. But since the 2008 finan-cial crisis, the spread between the two has grown roughly threefold, making equities a far more attractive asset class, relatively speaking.

room to rise?Exhibit 1 would also seem to suggest that there is considerable room to extend recent equity-market gains. On an absolute basis, earnings-to-price yields on equities remain considerably higher than those that prevailed in the 15 years preceding the 2008 financial crisis, which implies that price-to-earnings (P/E) multiples are below precrisis norms.

What’s more, there are other, longer-term trends that may support the movement of cash into equities. One such trend is the com-ing retirement of the baby boom generation. Although this demographic transition will eventually lead to the withdrawal of massive amounts of cash from the equity markets, the impact is likely to be more positive in the next five to ten years. Baby boomers have accumulated a great deal of wealth and as they age they will be looking for places to in-vest that wealth in order to provide income and preserve capital. These goals will rein-force the market for companies that deliver low risk combined with attractive capital gains or high dividends (or both).

Another potential upside for equity markets (or, at least, a floor under stock prices) is the unprecedented amounts of cash that compa-nies are accumulating on their balance sheets. Exhibit 2 shows that one result of the financial crisis and downturn has been a step function improvement in company profit margins—leading to a growth in operating cash flow. As a result, U.S. companies are sit-ting on the largest cash pile in history—ap-proximately $1.3 trillion for the 426 industrial

0

2

4

6

8

10%

Yield of global equities (based on earnings-to-price ratio) Risk-free interest rate

19991995 1997 199819961994 20102003200220012000 2004 2005 2011 2012 201320092008200720061993

Sources: Thomson Reuters datastream; BCG analysis.Note: Global equities include all companies listed in datastream’s world market index, with the exception of financial companies. The risk-free interest rate is the yield on ten-year U.s. Treasury benchmark bonds.

Exhibit 1 | Since 2008, Equities Have Become a More Attractive Asset Class


companies in the S&P 500 for which there are continuous data for the period from 2000 through 2012, which represents about 6 per-cent of the entire $22 trillion value of the U.S. equity market.

These enormous cash balances can be a po-tential problem but also a potential solution. At current low interest rates, this cash is un-likely to be valued fully by investors. What’s more, it represents a tempting target for those looking for ways to get their hands on more cash—whether governments (in the form of higher taxes) or activist investors (in the form of corporate breakups or takeovers). However, if companies start actively deploy-ing this cash—either by investing in new opportunities for profitable growth or by returning it to investors in the form of share buybacks or increased dividends—these cash balances could further boost stock prices and overall TSR. (See the sidebar “The Compo-nents of TSR.”)

Of course, all bets are off should interest rates rise. A comment by U.S. Federal Reserve

chairman, Ben Bernanke, on May 21, 2013, that the Fed might consider paring back its monthly $85 billion purchases of bonds in the near future was enough to trigger a decline in the S&P 500 of 4 percent over the next three weeks. As of August 2013, global equity mar-kets had regained some of the volatility that had been largely absent during the previous 18 months.

the Need to Step out from the packNo one knows precisely how long the current expansionary equity-market environment will last. As companies devise their value-creation strategies, it is critical to keep four things in mind:

Just as important as a company’s absolute •TSR is its relative TSR compared with its peer group. And just as today’s buoyant market is affecting the tSr of nearly all companies, so will any flattening or decline in equity values once the current central-bank policies are unwound.

. . . allowing them to accumulatecash on their balance sheets

1.31.3

1.2

1.00.9

0.80.8

0

0.5

1.0

1.5

2012201120102009200820072006

+62%Total cash ($trillions)

16.016.2

16.3

14.314.614.614.6

13

14

15

16

17

18

0

1,500

1,000

500

2012

Operating cash flow ($billions)

9341,062 1,077

+41%

20112010

EBIT margin (% of sales)

2009

808

2008

921

2007

827

2006

763

EBIT marginOperating cash flow

Increased profitability has improvedcompanies’ cash flow . . .

Sources: s&P Capital IQ; Thomson Reuters Worldscope; BCG analysis.Note: In the graph on the left, operating cash flow is calculated as eBIT (earnings before interest and taxes) minus the change in nonworking capital at 419 companies in the s&P 500 for which data are available from 2005 through 2012. The graph on the right shows the total cash balances for 426 industrial companies in the s&P 500 for which data are available from 2005 through 2012.

Exhibit 2 | Companies Are Accumulating Unprecedented Amounts of Cash


Total shareholder return is the product of multiple factors. Regular readers of the Value Creators report should be familiar with BCG’s model for quantifying the relative contribution of the various sources of TSR. (See the exhibit below.) The model uses a combination of revenue (that is, sales) growth and change in margins as an indicator of a company’s improvement in fundamental value. It then uses the change in the company’s valuation multiple to determine the impact of investor expecta-tions on TSR. Together, these two factors determine the change in a company’s market capitalization and the capital gain (or loss) to investors. Finally, the model tracks the distribution of free cash flow to investors and debt holders in the form of dividends, share repurchases, or repay-

ments of debt in order to determine the contribution of free-cash-flow payouts to a company’s TSR.

The important thing to remember is that these factors all interact with each other—sometimes in unexpected ways. A com-pany may grow its revenue through an EPS-accretive acquisition and yet not create any TSR, because the new acquisi-tion has the effect of eroding the compa-ny’s gross margins. And some forms of cash contribution (for example, dividends) have a more positive impact on a com-pany’s valuation multiple than others (for example, share buybacks). Because of these interactions, we recommend that companies take a holistic approach to value creation strategy.

THE COMPONENTS OF TSR

Profit growth

Cash flowcontribution

TSR Change invaluation multiple

TSR drivers Management levers

Capital gains

ƒ

1

2

3

• Portfolio growth (new segments, moreregions)

• Innovation that drives market share• Changes in pricing, mix, and productivity that

drive margins• Acquisitions (as a growth driver)

• Portfolio profile (value-added, commercial risk,cyclicality)

• Debt leverage and financial risk• Investor confidence in sustainability of earnings

power• Investor confidence in management’s capital

allocation

Return of cash (via dividends and sharerepurchases) aer:• Reinvestment requirements (capex, R&D,

working capital)• Liability management (debt, pensions, legal)• Acquisitions (as a use of cash)

Source: BCG analysis.

TSR Is the Product of Multiple Factors


Executives should neither take the recent increases in valuations for granted nor be paralyzed by any forthcoming decline. Instead they should focus their energy on developing a clear investment thesis for how they will allocate capital in the future in order to create value.

Similarly, whatever happens to valuation •multiples on average, the real name of the game is how one company’s multiple compares with the multiples of its peers. In order to have a relative valuation advantage, companies need to know what drives the differences among multiples in their peer group. Take the example of debt. Low interest rates may encourage a company to take on more debt. But in some sectors, excess debt has a demon-strated negative impact on relative multiples.

All things being equal, sustainable •earnings growth is the key to long-term value creation. But all things are never equal, and investments to drive earnings growth often end up destroying value. Other actions—raising margins, reducing

risk, allocating capital differently, restruc-turing the portfolio—may be more relevant, depending on the company’s opportunity set and starting position. Most companies will need concrete strategies for increasing their top-line revenues at least as fast as their peers over time. But whether a company is in a position to create value primarily through growth depends entirely on its starting position and the relative health of its business.

In an environment of easy capital and •buoyant valuations, companies will be tempted to throw money at problems or to “buy growth” (for example, by overpaying for acquisitions). It is a big mistake. They need to be disciplined about capital deployment.

note1. See “Signs of Sustainable Value Creation,” BCG article, February 2013.


how ValUe patterNS Shape prioritieS for

ValUe CreatioN

How do successful companies make the right choices in order to create

attractive shareholder value? There is no one simple or universal formula. Companies as different as the north american retailer of high-end yoga and exercise clothes Lulu-lemon Athletica, the Korean automaker Hyundai Motor Company, and the U.S. industrial supplier W.W. Grainger all deliv-ered shareholder returns over the past five years that were strong enough to earn them a spot in our top-ten rankings in their respec-tive industries. But they illustrate the diver-sity of company starting positions, and each achieved superior performance following quite different paths.

In last year’s Value Creators report, we intro-duced the idea of value patterns—distinctive company starting positions that cut across in-dustry boundaries and shape the range and types of strategic moves most likely to create value.1 This year, we use the stories of these three quite different companies to explore the wide range of contexts in which leaders must find strategies for value—and how they can use the value patterns concept to unlock new sources of value.

four factors Underlying Value patternsIn recent years, BCG has been conducting a major proprietary research effort to analyze

the quantitative factors that define a compa-ny’s starting position, as seen from an inves-tor’s point of view. Our research has focused on four underlying factors that define the context for any company’s investment thesis: the health of its portfolio, the degree and quality of its growth exposure, the nature of the risks it faces, and the expectations of its investors, as expressed by the company’s val-uation. Let’s consider each of these factors in turn.

Portfolio Health. Although delivering returns that are above the cost of capital has long been a fundamental principle of value management, it is striking how many execu-tives still think of value creation in terms of earnings, margins, or growth rates. As long as earnings are growing, these executives think they are creating value. But an earnings- or profit-growth agenda is not necessarily a value agenda. More than one-third of the $8 trillion of invested capital in the S&P 1500 does not earn the cost of capital. A business with a low return on invested capital has yet to earn the right to grow. therefore, the first question any senior executive team must ask itself is: Where do we enjoy competitive advantage in our business that can drive attractive returns on invested capital?

Growth exposure. For market segments and positions with attractive returns, the next challenge is to find attractive growth expo-


sure. Although the vast majority of compa-nies are expected to grow at modest rates, most companies aspire to break out from the pack and deliver above-average growth. In doing so, however, the challenge is not simply to grow—for growth can create no value and, in some cases, can even destroy value. The key question is: How much growth exposure do we have, and how can we find profitable and sustainable growth?

Risk Profile. Highly leveraged, turbulent, or fast-changing businesses require different actions to defend and increase value. Debt leverage is highly visible because companies with stressed balance sheets have weak credit statistics and ratings. Companies with too much debt must focus on restructuring and liquidity. Businesses with significant commer-cial risk—those facing turbulent markets, rapid competitive shifts, or unusually high uncertainty on key business drivers—typical-ly have volatile market values because investors are not sure whether today’s earnings will be around tomorrow. For some companies, the degree and types of risk will be the dominant value-creation issue they face.2 Investors will want to know how the company intends to protect itself against a significant deterioration in the franchise value of the business. So executives must ask:

What are our key risks and how should we manage them?

Investor expectations and Valuation. Most companies most of the time trade in a range that is consistent with their fundamentals and their future prospects. But sometimes, compa-nies find themselves with a valuation that is considerably outside this range—with implica-tions for future value creation that have to be managed. An unusually low valuation can be a tempting target for activist investors and threaten the breakup of the company. And while everyone likes a high stock price, too high a valuation can seriously penalize a company’s future tSr potential. the final question in formulating an investment thesis is: What expectations do our investors have, and does our valuation match our outlook?

Understanding a company’s profile along these four dimensions is a critical first step in developing a sound investment thesis to guide strategic priorities. But depending on a com-pany’s starting point, any one of these factors may carry a special weight. BCG’s research on roughly 6,000 companies in 60 countries has identified ten distinctive value patterns that combine these four factors—portfolio health, growth exposure, risk profile, and valuation dynamics—in different ways. (See Exhibit 3.)

Portfolio health

Growth exposure

Risk profile

Valuation dynamics

Underlying factors Performance metrics Value patterns

1. Healthy high growth

2. Discovery

3. High-value brand

4. Asset-light services

5. Asset-heavy discovery

6. Average (diversified)

7. Hard assets

8. Utility-like

9. Deep value

10. Distressed

• Return on tangible gross investment• Gross margin• Capital per dollar of sales• R&D as a percentage of sales• Operating expenditures as a percentage

of sales

• Forward-looking three- to five-year revenue growth (analysts’ consensus estimates)

• Enterprise-value volatility• Ratio of net debt to enterprise market

value

• Enterprise price-to-book ratio• Equity price-to-revenue ratio


Exhibit 3 | Ten Value Patterns Show Strategies Most Likely to Create Value


lululemon: Navigating the high wire of high growthTo get a sense of how value patterns work, consider the story of Lululemon Athletica, a North American specialty retailer with a lead-ing brand selling premium yoga apparel to women. The company opened its first store 15 years ago in Vancouver, sharing space with a yoga studio. With well-designed and techni-cally advanced products, an energizing in-store experience, and a strong focus on com-munity development, Lululemon has created a powerful new brand.

By 2008, the company had revenue of $275 mil-lion from 80 retail locations and was listed on the NASDAQ stock exchange. The company’s economics were very healthy, with gross mar-gins of more than 50 percent and return on gross book capital of more than 40 percent. Investor expectations were also high—the company had a market value of $3.2 billion. Investors were valuing the company at al-most 12 times sales and at more than 20 times enterprise book capital. Despite these high expectations, Lululemon was able to de-

liver an average annual TSR of 26.3 percent during the five-year period from 2008 through 2012, placing the company at the number five spot in this year’s global con-sumer durables and apparel industry ranking.

How did Lululemon more than triple its in-vestors’ money over this five-year period? (See Exhibit 4.) In 2008, the company’s start-ing position fit what we call the healthy-high-growth value pattern. Companies in this posi-tion, which make up about 5 percent of the 6,000 companies in our global sample, are often pioneers that create new categories, brands, or business models. Recent examples include Amazon.com, Netflix, Green Moun-tain Coffee, and Intuitive Surgical.

These companies have healthy business systems that earn extremely high operating returns—their median return on gross in-vestment is 17 percent, more than double the global median of 8 percent. They also show growth potential. They are expected to scale their businesses up significantly, with a credible path to doubling sales and profits

Share price appreciation TSR disaggregation

2.0

1.5

1.0

0.5

0

4.5

4.0

3.5

3.0

2.5

20092008 201220112010

Value of a (nominal) dollar invested in 2008

0

10

20

30

40

50Sources of TSR (percentage points)

TotalTSR

Cash flowdistribution

Marginchange

Multiplechange

SalesgrowthLululemon S&P 500Peer index

26

9

38

–19

–3

Source: BCG analysis.Note: In the graph on the left, the peer index includes adidas, Bebe stores, Gap, nike, Under Armour, and all companies listed as lululemon competitors in the company’s 2011 annual report. In the graph on the right, the contribution of each source of TsR is shown in percentage points of five-year average annual TsR; any apparent discrepancies between sources of TsR and total TsR are due to rounding.

Exhibit 4 | From 2008 through 2012, Lululemon More Than Tripled Investors’ Money


several times over a five- to ten-year time horizon. Because of these companies’ obvi-ous strong prospects, investors have high expectations and value them at high multi-ples, often in the range of five to eight times enterprise book capital, as compared with the global average (1.7 times enterprise book capital). But healthy-high-growth busi-nesses also face significant commercial risks: their high margins attract competition, their market values are volatile, and their high valuations create significant room for disap-pointment.

The primary value-creation priority for com-panies in a healthy-high-growth value pat-tern is to “beat the fade.” Every innovative high-growth business transitions or fades to maturity at some point and, as a result, shows a significant decline in valuation mul-tiples along the way (often a more than 50 percent decline over five years). The healthy-high-growth companies that create superior shareholder value take longer to reach maturity and end up with a competi-tively stronger and sustainable end-state portfolio. Over the past five years, Lulu-lemon has created value by pursuing three strategic themes typical of successful healthy-high-growth companies.

execute successfully against the core growth opportunity. Since 2008, Lululemon has expanded rapidly, more than doubling its number of stores from 80 to 200 (within the context of roughly 350 potential North Ameri-can locations). In the process, it has increased its revenues fivefold and its operating profit more than sevenfold. Lululemon also expand-ed from its initial focus on yoga apparel for women into adjacent segments. The company has added athletic clothes for running, biking, and swimming, as well as products for both men and children. And recently, it invested to expand its direct-to-consumer channel on the Internet; in 2012, the company’s online sales grew by 86 percent.

Maintain differentiation and demand sticki-ness. A common pitfall for healthy-high-growth companies is to pursue rapid growth at all costs and end up with a diluted, overex-tended franchise vulnerable to competitive inroads. The very success of healthy-high-

growth companies makes them targets for new competitors. As Lululemon has grown on the back of the premium yoga craze, Nike, adidas, and others have aggressively pursued the same customers.

Lululemon was careful to preserve the quality of its revenue base by opening new locations in a disciplined way. It maintained close con-trol of product distribution and the customer experience. It reinforced an exclusive, premi-um-brand image through technical product innovations. And it engaged customers emo-tionally by promoting an ecological, spiritual, and sexy lifestyle.

The value creation priority for healthy-high-growth com-panies is to “beat the fade.”

A critical factor in maintaining Lululemon’s premium position is the company’s innova-tive “community based” approach to building brand awareness and customer loyalty. The company’s target customer is a confident and healthy 25- to 35-year-old woman with no children, a career, and significant disposable income. In addition to its own stores and website, the company selectively distributes its products through high-end fitness clubs and yoga studios. The company is also an active user of social media to encourage the sense of an engaged community around its brand and customers. The resulting high lev-els of affiliation and trust that customers as-sociate with Lululemon products function as a strong barrier against competitors.

Taken together, these moves have allowed Lu-lulemon to deliver superior TSR through an extraordinary growth in revenues (responsi-ble for 38 percentage points of TSR per year), coupled with a steady increase in operating profit margins (responsible for 9 percentage points of TSR per year). This strong perfor-mance more than offset a major decline in the company’s valuation multiple (responsi-ble for a decline of 19 percentage points in TSR per year), as the company delivered on the high expectations embedded in its valua-


tion at the beginning of the five-year period from 2008 through 2012.

Manage the risks of high growth. Maintaining the high performance expected of a healthy-high-growth company is difficult. over a five-year period, 80 percent of the companies in this category either shift to more mature value patterns or lose their independence through a change in control. Lululemon has delivered strong shareholder value during the past five years, but, as a focused company with high expectations, it has experienced bumps along the way. The company started early 2008 with a stock price of $24 per share; in 2009, in the aftermath of the global finan-cial crisis, it traded below $3 per share; and it subsequently reached a high of $78 per share in 2012.

Although Lululemon’s performance was very strong during the five years covered by this year’s Value Creators report, more recently it has not been so fortunate. In March 2013, the company was forced to recall approximately 17 percent of all women’s yoga pants sold in its stores because the product was uninten-tionally see-through. The flaw, caused by quality control issues in the company’s sup-ply chain, caused the company’s earnings to take a hit of roughly $60 million and led to the resignation of its chief product officer. The long-term impact of this stumble remains to be seen—in particular, whether it will erode brand loyalty and provide an opening for Lululemon’s competitors to challenge the company’s valuable niche.

hyundai’s “Deep Value” turnaroundSometimes the challenge facing a company is, in effect, to migrate from its current value pattern to one with more value-creation po-tential. To illustrate this situation, consider the recent history of Hyundai Motor Compa-ny. Founded in 1967, the company spent its first 35 or so years producing functional, low-priced cars. Although it dominates its domes-tic South Korean market, Hyundai made some major missteps when it first went abroad. The Excel, introduced in the U.S. in 1986, was cheap but also unreliable—estab-lishing the Hyundai brand as a provider of

low-cost, low-quality cars. Fifteen years later, in 2001, Hyundai was ranked only 32 out of 37 brands in J.D. Power’s annual study of new-vehicle quality.

Hyundai’s starting position in 2008 fit the val-ue pattern we call deep value. Companies in this pattern are typically found in mature and often cyclical categories, with limited differ-entiation in what are often intensely competi-tive segments. With a median return on gross investment of only 4 percent, which is half that of our 6,000-company global sample, these companies do not earn the cost of their capital. And their lack of competitive differ-entiation means they usually have weak gross margins (a median of 18 percent, again, half the global sample median). Not surprisingly, they also have low valuations, trading at about 60 cents per dollar of enterprise book value.

Deep-value companies can create value by repositioning, restructuring, and reinvesting.

Nevertheless, deep-value companies can cre-ate substantial shareholder value—but only if they reposition, restructure, and reinvest stra-tegically to bring about a radical improve-ment in their value proposition. This is pre-cisely what Hyundai has done—creating a much stronger business (with higher sales and margins, greater return on capital, and lower leverage) and, consequently, driving a massive increase in equity value.

In the past decade, Hyundai has undergone a total transformation under the leadership of company chairman Mong-Koo Chung (who took over in 1999 from his father and compa-ny founder Ju-Yung Chung). The company has cultivated a mindset of ambition, boldness, and impatience to become a global leader. Hyundai Motor America’s CEO summarized that culture this way in a 2010 article in For-tune: “We set targets before we know how to get there. And we are the hardest-working company on the planet.”3 As a result of its on-going transformation, Hyundai has become


the fastest-growing automaker in the world. In the period from 2008 through 2012, Hyun-dai reaped the rewards of this operating turn-around in shareholder value creation, deliver-ing an average annual TSR of 26.4 percent, enough to put the company at the number six spot in our global automotive OEM rank-ings. (See Exhibit 5.)

How did Hyundai create this $35 billion in-crease in shareholder value? Through a stra-tegic focus on three specific “unlocks” that fit the company’s 2008 deep-value starting position.

Invest strategically to drive a more competi-tive offer. Hyundai’s recent strong perfor-mance reflects the company’s long-term pursuit of a more competitive global product range that delivers higher quality and better technology—at very affordable prices. the company inaugurated a major quality- improvement initiative that included steps such as building a pilot production line in its

product-development R&D center to test the manufacturability of new models while they were still in development. By 2009, Hyundai had improved its ranking in J.D. Power’s annual quality study from number 32 to number 4—displacing Toyota as the highest-ranked mass-market brand in the world, behind only luxury brands Lexus, Porsche, and Cadillac.

Hyundai also invested heavily to develop a new group of vehicles with quality and technology equal to its high-end competitors but at a substantially lower price point. For example, in 2008, the company developed its first six-speed transmission and, in 2009, its own direct-injection engine—a develop-ment that has won it a place on the list of the world’s top-ten automotive engines. And instead of selling the same models in every market and region, Hyundai has de-veloped different models designed specifi-cally for the needs of its different target markets.


2.5

0

0.5

2.0

1.5

1.0

4.0

3.5

3.0

Value of a (nominal) Korean won invested in 2008

2008 2009 2010 2011 20120

10

20

30

Sources of TSR (percentage points)

Valuationmultiple

TotalTSR


Margingrowth

SalesgrowthHyundai KOSPI Peer index

269

2

8

7

Source: BCG analysis.Note: In the graph on the left, KOsPI is the Korea Composite stock Price Index; the peer index includes sl Corporation and ssangyong Motor. In the graph on the right, the contribution of each source of TsR is shown in percentage points of five-year average annual TsR.

Exhibit 5 | Hyundai’s Operating Turnaround Drove Superior Shareholder Value


These investments have paid off in both increased sales and a transformation in the reputation of the Hyundai brand. For exam-ple, the Hyundai Genesis, a step up from the midsize Sonata, was introduced to the U.S. market in 2008; in 2009, it was selected as North American Car of the Year. In 2010, the company introduced the Equus, designed to compete with top-of-the-line models from Mercedes, BMW, and Audi. These new models have led to greatly expanded sales, not only in the U.S. but also in China, where Hyundai is one of the top foreign automakers, by sales. Between 2008 and 2012, the company’s prof-its tripled.

Improve productivity and margins. In addi-tion to introducing new products, Hyundai made significant investments to lower its manufacturing and supply-chain costs—re-sulting in expanding margins. Although the company manages the world’s largest inte-grated auto manufacturing site in Ulsan, South Korea, it has also invested in significant capacity close to global customers, with seven overseas manufacturing plants located in Brazil, China, the Czech Republic, India, Russia, Turkey, and the U.S. Today, roughly 60 percent of Hyundai’s production takes place overseas.

High-value-brand companies are among the healthiest and strongest in the market.

significantly reduce risk. In 2008, Hyundai’s balance sheet was relatively weak. The company had significant debt leverage, with a BBB– credit rating and about 70 cents of net debt per dollar of enterprise value. As the company generated successful new products and substantially more free cash flow, it was able to deploy a portion of that cash flow to pay down its debt and thus reduce risk. By 2012, the company had cut its debt-to-enter-prise value by more than half (to 31 percent), winning an upgrade to an A credit rating.

Hyundai’s value-creation performance over the past five years has not only been strong

but also remarkably balanced. Contributions from revenue growth accounted for about 7 percentage points of average annual TSR; margin improvement was responsible for about 8 percentage points; growth in the company’s valuation multiple provided an additional 2 percentage points; cash flow re-turned directly to investors added 1 percent-age point; and cash flow returned to debt holders to pay down debt contributed 8 per-centage points. If Hyundai can continue along its current trajectory, it will be well on the way to establishing itself in the value pat-tern that we term high-value brand.

grainger: Maintaining the Strengths of a high-Value BrandThe companies in the high-value-brand value pattern usually enjoy leadership positions in mature but healthy categories. Such compa-nies make up about one-fifth of our 6,000- company global sample and are among the healthiest and strongest businesses in the market. They typically enjoy powerful com-petitive advantages and have a limited con-centration of earning power in any single technology, patent, or product. They derive advantage from scale, from brands, from ca-pabilities, from strategic control of scarce re-sources, or from a combination of these strengths. As a result, they enjoy high and rel-atively stable gross margins (a median of 47 percent compared with the global median of 36 percent), moderate capital intensity (re-quiring roughly 50 cents in capital to generate a dollar in revenue), and a return on gross in-vestment well above the cost of capital.

And yet, not all high-value-brand companies are necessarily strong value creators. Over a five-year holding period, approximately one-third of companies that start in this value pattern deteriorate in performance signifi-cantly—enough to migrate down to other val-ue patterns with lower margins, lower returns on capital, and lower average valuations. To avoid such a negative outcome, high-value-brand companies have four distinct priorities for unlocking new value:

They need to • protect and grow the category—and, in particular, defend themselves against any broad long-term


shifts that could fundamentally reshape their core markets.

They must • avoid complacency—especially in the form of strategies that milk the business in order to meet quarterly earnings-per-share targets at the price of eroding long-term competitiveness.

They also need to • avoid complexity and low-quality growth. The high valuations for these companies (unlike those for healthy-high-growth companies) do not reflect investor expectations of high revenue growth; rather, they are primarily supported by high gross margins and high return on capital. We estimate that 1 percentage point of sustained additional gross margin at these companies is worth three to four times more in market value than 1 percentage point of additional future revenue growth.

Finally, because high-value-brand •companies invariably generate far more cash than they can usefully invest in growing the business, these companies have to carefully allocate excess cash. How they deploy that cash can have a major impact on their TSR performance.

For an example of a company in this year’s top-ten rankings that successfully met these challenges, consider the case of W.W. Grainger. With 2012 sales of $9 billion, Grainger is North America’s leading supplier of so-called maintenance, repair, and operat-ing (MRO) products—everything from indus-trial motors to janitorial supplies purchased by business facilities. In 2008, Grainger was a well-positioned competitor in its sector with high gross margins (in the neighbor-hood of 45 percent) and a healthy enterprise value of more than two times the company’s gross investment. At the same time, however, the company faced threats to its core business, both from the effect of the oncom-ing economic downturn on customer de-mand and from increased competition from new players in the MRO market. Despite these challenges, Grainger did three things that allowed it to maintain its strong posi-tion and deliver an average annual TSR of 20.4 percent during the five-year period

from 2008 through 2012—making it the number seven value creator in our machin-ery sector. (See Exhibit 6.)

Reinvest in a winning business model. As the highly fragmented MRO market continues to evolve, several large players are attacking the space from different legacy positions and business models. Fastenal, Amazon.com, Home Depot, McMaster-Carr, MSC Industrial Direct, and many other companies can compete with Grainger in different ways— depending on the product, customer, occa-sion, and geography. This diversity of custom-er options creates a strong need for Grainger to be clear about precisely how it will create sustained advantage versus the competition.

How high-value-brand com-panies deploy cash can have a major impact on their TSR.

In response, the company’s strategy has been to position itself as a one-stop shop that is able to supply the full range of a customer’s MRO needs. It has invested significantly in broadening its product offering (which now includes products from more than 3,500 sup-pliers), expanding its sales-force presence in key markets (both in the U.S. and abroad), and developing a new on-site client account management system. One indicator that this strategy has been working is that the compa-ny’s growth in same-customer sales has near-ly tripled.

Pursue modest but high-quality growth. Grainger also executed a careful growth strategy that focused on maintaining its already high margins. The company reduced costs by improving network capacity and productivity and by adding operating capacity in strategic locations in the U.S., Canada, and Japan. The company also expanded into the highly fragmented MRO sectors in emerging markets, through both organic investment and acquisitions. Finally, its online initiatives have greatly improved the ease with which customers find, buy, and manage their inventory online—so much so


that e-commerce was Grainger’s fastest-growing channel in 2012, accounting for more than 30 percent of total company sales.

ensure disciplined capital allocation. In some respects, however, the most interesting part of the Grainger story may be the strategic moves the company didn’t make. Although the company has made some strategic acquisitions to fill out its footprint, it has been careful not to tie up cash in “bet the company” or diversi-fying M&A bets. In 2012, for example, Grainger generated over $800 million in free cash flow. the company reinvested just under a third of that cash to fund its capital expendi-tures and two small acquisitions. The lion’s share (over two-thirds) was returned to shareholders in the form of stock buybacks and dividends. And Grainger has committed to a predictable return of cash, more than doubling the dividend (from $1.34 to $3.06) between 2007 and 2012.

A careful growth strategy with smart capital-allocation decisions allowed Grainger to de-liver its superior TSR through a balanced

combination of revenue growth (responsible for 7 percentage points of average annual TSR), margin expansion (responsible for 5 percentage points), improvements in the company’s valuation multiple (responsible for 4 percentage points), and free-cash-flow yield (responsible for an additional 4 per-centage points).

For more insights coming out of our research on value patterns, see the sidebar “More Facts About Value Patterns.”

notes1. See Improving the Odds: Strategies for Superior Value Creation, the 2012 Value Creators report, September 2012.2. See The Art of Risk Management, BCG Focus, April 2013, and Risky Business: Value Creation in a Volatile Economy, the 2011 Value Creators report, September 2011.3. Alex Taylor III, “Hyundai Smokes the Competition,” Fortune, January 5, 2010.


2.0

1.5

1.0

0.5

0

2.5

3.0

20092008

Value of a (nominal) dollar invested in 2008

2010 201220110

5

10

15

20

25

Net incomemargin

Revenue

Sources of TSR (percentage points)

TotalTSR


P/Emultiple

Grainger S&P 500Peer index

205

6

3

7

Sources: Morningstar; BCG analysis.Note: In the graph on the left, the peer index includes Anixter International, Fastenal, MsC Industrial direct, Watsco, Wesco International, and all companies that are listed as competitors in the 2013 Morningstar annual report. In the graph on the right, the contribution of each source of TsR is shown in percentage points of five-year average annual TsR; any apparent discrepancies between sources of TsR and total TsR are due to rounding.

Exhibit 6 | Strategic Growth and Smart Capital Allocation Drove Grainger’s TSR


Here are some additional insights about value patterns that are emerging from BCG’s research.

Value patterns cut across industry •boundaries. One finds companies from quite different industries sharing the same value pattern. For example, medical technology, machinery, and building materials don’t have much in common as industrial sectors. And yet, the top value creator in each sector—Elekta, a Swedish provider of automated clinical solutions for cancer and neurological diseases; TransDigm, a U.S. aircraft components supplier; and China Fortune Land Development, a developer of industrial parks—is a healthy-high-growth company, which means that these three companies face similar value-creation challenges and priorities.

Companies within a single industry may •have quite different value patterns. In addition to healthy-high-growth compa-nies like Elekta, for example, the medical technology top ten also contains companies in the discovery (U.S. heart-valve maker Edwards Lifesciences at number three), high-value brand (Italian diagnostic-equip-ment maker DiaSorin at number five), and asset-heavy discovery (German medical-technology solutions supplier Carl Zeiss Meditec at number eight) value patterns. Although they are in the same industry, these companies face different priorities and tradeoffs for value creation.

Companies in the • discovery value pattern are usually healthy technology innovators with high R&D expenditures, gross margins, and returns. However, such businesses are also risky and show significant volatility owing to unstable segment boundaries and rapid product or technology obsolescence. Unless a discovery company can keep replenish-

ing its commercial base with fresh and relevant innovation, it is unlikely to sustain attractive levels of value creation.

Companies in the • asset-light services value pattern are usually intermediar-ies—aggregators of products and services such as large distribution systems. They generate healthy returns because of their low capital intensity and ability to expand sales with little capital investment. But they are highly sensitive to incremental changes in margins and must avoid growth that increases asset intensity, dilutes margins, or exacerbates execution risk.

Companies in the • hard assets value pattern are mature, healthy, but modest-return businesses with extreme-ly high capital intensity. Success in this value pattern depends on scrupulous management of the asset base—in particular, maintaining a competitive capacity base through both operational effectiveness and well-conceived, well-executed capacity adds and closures. A long-term horizon and the ability to manage effectively through up-cycles and down-cycles can create substantial shareholder value.

About one in four companies in our •6,000-company global sample has a starting position that we call average (diversified). These companies have characteristics close to the average company in our sample. Instead of being able to focus on two or three clear issues in their investment thesis, they have to take a more balanced approach.

MORE FACTS ABOUT VALUE PATTERNS


VF Corporation is the world’s largest apparel company, with a market cap of

$22.8 billion and a stable of strong brands ranging from heritage businesses Lee and Wrangler jeans to more recently acquired lifestyle brands such as The North Face and timberland. over the past seven, five, and three years, VF has delivered a TSR of 19 percent, 21 percent, and 30 percent, respec-tively, making it a consistent top performer among its direct peers. (See Exhibit 7.) The company just missed making our top-ten rankings for the broader global consumer durables and apparel industry by half a percentage point; it came in at number 11.

VF focused on TSR to deliver strong value to shareholders in the medium to long term.

VF’s outstanding TSR performance is the product of an end-to-end transformation of the business that included a shift in primary focus from cost cutting to growth, a major reshaping of the corporate portfolio, an en-hanced capital and financial strategy, and the consistent use of TSR as a lens to help focus the company’s culture and decision making on delivering strong value to shareholders over the medium to long term. “We are very

proud of our track record,” says Bob Shearer, the company’s CFO since 1998 and one of the executives who spearheaded the transforma-tion effort. “We have provided investors with ‘reason to believe.’”

Creating a New growth StrategyAt the turn of the new century, VF was a good company with strong management but with limited organic growth. It had two large businesses: the jeanswear business, which included Lee and Wrangler (two of the three iconic American jeans brands), and the inti-mate-apparel business, consisting of Vanity Fair (the origin of the company’s name) and many other smaller brands. These businesses, which were responsible for about 80 percent of total revenues, generated a lot of cash flow, but they were mature, low-gross-margin seg-ments that were growing relatively slowly. To the degree that the company was growing earnings in these businesses, it was largely through cost cutting and extremely efficient manufacturing.

At that time, the company added a few small-er lifestyle brands to its portfolio. The compa-ny acquired The North Face (then a $250 mil-lion business) in 2000 and Nautica in 2003. These brands were growing faster and had higher gross margins, but they were too small then to have much of an impact on the com-pany’s overall top line and earnings trajecto-

Vf CorporatioNTSR-LeD TRaNSFoRmaTioN


ry. According to Shearer, by 2004, there was a growing conviction among VF’s senior-man-agement team that “we need to grow this business.”

“We had a business model problem more than anything else,” explains Eric Wiseman, who became VF’s CEO in January 2008 and had previously served as the company’s presi-dent. “We had no meaningful organic growth and it was difficult to grow our gross margins. And while we had been improving our oper-ating margin, that had come mainly through cost cutting. We were stuck at about $5 bil-lion in revenue. We kept asking ourselves: How do we build a stronger and more com-pelling business model?”

Based on what they were learning from man-aging the new lifestyle brands, the senior

team, led by then-CEO Mackey McDonald, de-veloped a growth strategy that focused on shifting VF’s portfolio mix away from the cat-egory-driven heritage businesses toward the lifestyle brands and emphasized internation-al growth in markets in which the company had a limited footprint. As part of the new growth strategy, the company began buying a number of youth-oriented lifestyle brands—acquiring Vans (a California-based maker of athletic shoes often used by skateboarders) in 2004 and surfwear maker Reef in 2005.

Convincing the equity MarketsBy 2006, the new growth strategy was begin-ning to pay off. The company’s ability to gen-erate top-line organic growth was improving. And yet, it was as if the equity markets were discounting the improved trajectory. VF’s P/E

Seven-year TSR, 2006–2012 Five-year TSR, 2008–2012

Average annual TSR (%) Average annual TSR (%)

Three-year TSR, 2010–2012

Average annual TSR (%)

Company rank

Thirdquartile

Thirdquartile

Thirdquartile

0.2

Median Median Median

Firstquartile

Firstquartile

Firstquartile

11.1

Peer 9: –16Peer 8: –11

Peer 7: 3

Peer 6: 8

Peer 5: 14Peer 4: 15Peer 3: 15Peer 2: 16

VF: 19

Peer 1: 20

0

50

100

150

200

250

300

350

400

450

–20–40 0 20

–3.3

4.1

9.9

Peer 9: –13

Peer 6: –5Peer 8: –5

Peer 7: 6

Peer 4: 12

Peer 3: 16Peer 5: 17Peer 2: 20

VF: 21Peer 1: 25

0

50

100

150

200

250

300

350

400

450

–50 –25 0 25

4.0

12.3

19.4

Peer 6: –12Peer 8: –10

Peer 7: 14

Peer 4: 18Peer 3: 19

Peer 2: 24Peer 9: 28

VF: 30

Peer 1: 40

0

50

100

150

200

250

300

350

400

450

–50 –25 0 25 50

Company rank Company rank

Peer 5: 18

6.0

Sources: Compustat; BCG analysis.Note: The blue curve represents the TsR results for the s&P 500.

Exhibit 7 | VF’s TSR Has Made It a Top Performer Among Its Direct Peers


multiple remained the lowest in its peer group. “It was very frustrating to us,” remem-bers Shearer. “We were growing our top and bottom line, but we weren’t seeing any im-provement in our P/E. The market wasn’t giv-ing us any credit for the new strategy and our stronger performance.”

The company engaged BCG to better under-stand this seeming contradiction. Was VF’s management team missing something? Or was it the market? A BCG team interviewed the company’s largest investors to under-stand their views of VF and their investment thesis for the company. The BCG team also analyzed the drivers of differences in valua-tion multiples in VF’s peer group (to see what distinguished the performance of its higher-multiple peers), evaluated the company’s fi-nancial policies, and developed a number of integrated corporate-strategy scenarios in or-der to improve the company’s value-creation strategy. (See Exhibit 8.)

The investor interviews were sobering. In general, the investors thought VF was a good, well-managed company. But its reputation was for cost discipline and manufacturing ef-ficiency, not growth. Investors were skeptical

of the new growth strategy and worried that it was too risky. “They didn’t really see us as a growth company,” says Shearer, “so they weren’t giving us credit for our acquisitions and additional growth in those early days.” A segmentation of the company’s investor base revealed a key reason for this skeptical reac-tion: the dominant group of VF investors was made up of defensive value investors for whom rapid growth was simply not a high priority. They saw the company’s future and value creation path very differently than the way that its management did.

Another set of important insights came from the analysis of valuation multiples in VF’s peer group. The BCG team used statistical re-gression analysis to identify correlations be-tween the range of P/E ratios in VF’s peer group and a comprehensive set of financial and operational variables, and it developed a statistical model that explained what drove the differences in valuation multiples in the apparel industry. Exhibit 9 shows the results of this analysis for VF and its peer group in the period from 2000 through 2006.

The scatter plot on the left-hand side of Ex-hibit 9 shows that the BCG model—based on

Apply TSR lens to corporate and business unit plans

BCG’s TSR research, insights, and proprietary tool kit

1 2 3

Optimize financialpolicy

Interview keyinvestors

Identify drivers ofvaluation multiple

Develop TSRscenarios and agree on the best path forward

4

5


Exhibit 8 | A Comprehensive Fact Base Underlay VF’s Value-Creation Strategy


statistical regressions of financial data from VF and its peer-group companies—predicted valuations that were a close fit with the actu-al valuations in the group, with an R2 (or re-gression correlation coefficient) of 0.88 (that is, 88 percent of the differences in valuation multiples in the group are explained by the model). The bar graph on the right-hand side of the exhibit shows that the most influential driver of differences in multiples in this group was a company’s gross margin as a percent-age of revenue (responsible for 34 percent of the difference in multiples), followed by oper-ating expenses as a percentage of revenue (responsible for an additional 22 percent).

In other words, within VF’s peer group, all other things being equal, the higher a compa-ny’s gross margins and the lower its operat-ing expenses as a percentage of revenue, the higher its valuation multiple compared with the multiples of its peers. Together, these two factors make up a company’s EBIT (earnings before interest and taxes) margin. Financial factors, such as a company’s capital structure and dividend policy, were responsible for an additional 21 percent. Meanwhile, three-year

revenue growth, although obviously an im-portant contributor to overall TSR, was, in fact, not so important in determining differ-ences in multiples—responsible for only 11 percent of the differences in the peer group.

BCG’s multiple analysis was an eye opener for the VF senior team. “We thought that growing the top line was the key to raising our P/E,” says Shearer. “But it turned out to be far less important than we had thought. The analysis showed us that the key factor was our gross margin.” Although VF’s organic growth was improving overall, its high-margin lifestyle brands were just too small to have a material effect on the company’s average gross margin as a whole.

improving the MultipleThe combination of the priorities of its domi-nant investor group, concerns about the risks associated with VF’s new growth strategy, and VF’s low gross margins helped explain why VF’s valuation multiple was the lowest in its peer group. The question was: What can we do about it?

34

22

15

11

6

0

20

40

60

80

100Relative impact on valuation (%)

Debt-to-assets ratio

Three-year revenue growth

Operating expenses (as a percentage of revenue)

Dividends (as a percentage of EBIT)

Gross margin (as a percentage of revenue)

R2 =0.88

EBITmargin

Primary drivers of differences in multiplesMultiple regression analysis

Actual multiple

Predicted multiple

R2 = 0.88

Undervalued

Overvalued

Sources: Compustat; BCG analysis.Note: The scatter plot charts actual multiples for VF and its peer group over the seven-year period from 2000 through 2006 against the predicted multiples derived from the regression analysis. The red dots indicate VF’s multiple for each of the seven years; the green dots indicate peer group multiples during the same time period. R2 = regression correlation coefficient.

Exhibit 9 | To Improve Its Multiple, VF Should Focus on Gross Margin, Not Growth


The company developed a sequence of moves designed to deliver strong and sustain-able TSR and to strengthen its multiple in the near term. The first move was a major shift in investor messaging: at an investor day in De-cember 2005, VF executives announced an explicit top-quartile TSR goal in order to com-municate to the investor community that the company was deeply committed to delivering strong and sustainable TSR, not just earnings growth, over the long term.

The investor day laid the groundwork for the second move. As part of BCG’s work, the team had done an event study showing that, on average, dividend increases had a much stronger positive impact on a company’s P/E multiple than share buybacks did. So on May 15, 2006, VF announced a near doubling of its dividend payout—from 23 percent of earn-ings to 45 percent. The increase took the company’s dividend yield from about 2 per-cent to nearly 4 percent. Investors found this higher yield attractive and began buying the stock and bidding up its price. Over the next six months, VF’s share price and P/E multiple increased by nearly 30 percent relative to the

market, taking the company’s valuation mul-tiple from the bottom to roughly the middle of its peer group. (See Exhibit 10.)

VF’s dividend increase helped protect its stock price during the 2008 financial crisis.

The dividend increase also helped protect VF’s stock price during the 2008 financial cri-sis. Like that of most companies, VF’s stock price fell precipitously during the crisis. How-ever, the drop in price pushed VF’s dividend yield to about 6 percent—which had the ef-fect of putting a floor under the stock, so the impact was not as bad as it might have been. Shearer tells the story of one investor who called him to say that he had considered sell-ing but had concluded, “How can I sell this stock with the 6 percent yield that I’m get-ting?” “We fared better than most,” says Shearer, “and we feel that the dividend had a lot to do with that.”

. . . allowing the companyto outperform the market

VF S&P 500Actual BCG’s prediction

Number of trading daysaer announcement

P/E change (%)

Aer its dividend announcement, VF’s P/E increased in line with projections . . .

25

20

15

10

5

050 10 15 20 30 45 155

80

90

100

110

120

130

140

5/15 6/15 7/15 8/15 9/15 10/15 11/15 12/15Date of announcementthrough year-end 2006

Index

Sources: standard & Poor’s; BCG analysis.Note: In the graph on the left,155 trading days represents the time between the dividend announcement and the end of the second quarter following the announcement.

Exhibit 10 | VF’s Dividend Increase Paved the Way for Future Value Creation


The third move was a big one: the 2007 dives-titure of Vanity Fair, one of the company’s legacy brands, as well as its entire intimate-apparel business. “It was a tough decision to sell Vanity Fair,” says Wiseman. “That’s where our company was founded in 1899 and where our name came from.” But, adds Shearer, “we just knew that from a TSR per-spective, it didn’t make sense to continue to own that business.” Although selling the inti-mates business meant a decline in the com-pany’s absolute earnings, it had the positive impact of a major improvement in VF’s gross margins.

transforming the portfolioEven as VF was taking steps to improve its valuation multiple, it also began a series of moves to fundamentally transform its portfo-lio—making it more attractive to more growth-oriented investors.

To emphasize to investors the potential of its new focus on lifestyle brands, the company hired a senior M&A executive from General Electric to run its acquisitions process. It also provided investors with greater clarity about its M&A strategy and track record. Both moves helped build VF’s credibility as an ac-quirer with growth investors. The company also began reporting earnings separately for its lifestyle brands in order to emphasize their higher margins and growth potential. Fi-nally, it hired a new corporate-strategy execu-tive and announced the creation of an inter-nal talent-management program that would build the capabilities necessary to manage a stable of high-growth lifestyle brands.

When he became CEO, Wiseman focused on three major growth initiatives: expanding the company internationally, increasing its direct-to-consumer business, and investing in inno-vation in order to develop more compelling products and more effective marketing. “I focused on these three areas because each of them provided us with ways not only to grow faster but also to expand our gross margins,” says Wiseman.

“But one of the smartest things we did,” he adds, “was to explain to our people why de-livering strong TSR over the medium to long

term mattered and the key drivers that would allow us to make that happen.” This initiative took the form of institutionalizing a TSR per-spective in the management ranks. More than 200 managers across key businesses and regions have been trained in the principles of TSR and how the TSR lens can be used to improve decision making. Today, the compa-ny assesses every proposed financial plan and the performance of every brand and business in terms of its TSR contribution. “People now understand that we need to be making decisions that enable their business, brand, and geography to contribute positively to TSR” says Shearer. “It helps people under-stand why we are making the decisions that we make.”

The key drivers of TSR are also built into the company’s management-incentive-compensa-tion plan. For example, it used to be that the annual bonus was based exclusively on earn-ings growth. Today, it includes criteria for gross margins, the generation of free cash flow, and revenue growth. “We pay people to deliver what fuels our TSR,” says Wiseman. And what gets measured gets done. “In the year that we started rewarding our people for the genera-tion of free cash flow,” says Shearer, “our total free cash flow grew almost 50 percent—from $650 million per year to $950 million.”

VF assesses the performance of every brand and business by its TSR contribution.

According to Wiseman, embedding the TSR perspective in the VF culture was a founda-tional element in the company’s success. “What helped us most,” says Wiseman, “is that we got a clear understanding of the TSR levers available to us. It allowed us to distort our time and resources to what really mat-tered. Instead of spreading our capital and managerial attention ‘democratically,’ we focused on those brands that would really drive our TSR performance.”

These moves had the impact of improving the company’s overall growth profile, attract-


ing more growth-at-reasonable-price inves-tors, and generating more cash to fund both organic and acquisitive growth. They also fundamentally changed investors’ image of VF. One sign of that change: in 2011, VF acquired outdoor-footwear company Timber-land for $2.3 billion, the largest acquisition in VF’s 112-year history. The company paid a significant premium, causing Timberland’s stock to rise after the announcement of the deal. And yet, investors were so confident in VF’s ability to create value from the deal that its own stock price rose (by 10 percent) after the announcement, creating an additional billion dollars in market capitalization.

“getting to $200 per Share”In 2006, at the beginning of VF’s new value-creation strategy, the company’s stock was selling at around $60 per share. At the time, Shearer did a presentation for VF manage-ment titled “Getting to $200 per Share.” “Peo-ple thought I was crazy,” he remembers. “But today, we’re hovering right around $200, and people feel great. They say, ‘We are doing what we said we were going to do.’”

Today, VF’s transformation is complete. The company has five brands with more than $1 billion in revenues that together represent about 70 percent of total revenue. The North Face should hit $2 billion in 2013, and Vans, which was a $340 million business when VF acquired it in 2004, should hit $1.7 billion. In five years, VF’s lifestyle brands should deliver a full two-thirds of VF’s total revenue—a dra-matic shift from where VF was in 2005, when those brands contributed less than 30 percent of the company’s total revenue.

According to CEO Wiseman, the new VF busi-ness model still has enormous TSR potential. In June 2013, VF unveiled a new five-year plan to investors. (Its previous five-year plan was introduced only two years earlier, but the company has already achieved about 70 per-cent of that plan’s financial goals.) By 2017, the company plans to grow its international business from $4 billion to $7.5 billion and nearly double its direct-to-consumer business from $2.3 billion to $4.4 billion. “We have barely scratched the surface,” says Wiseman. “The potential is nearly limitless.”


appeNDixTHe 2013 VaLUe CReaToRS RaNkiNGS

The 2013 Value Creators rankings are based on an analysis of total shareholder

return at 1,616 global companies for the five-year period from 2008 through 2012.

To arrive at this sample, we began with TSR data for more than 9,000 companies provided by Thomson Reuters. We eliminated all compa-nies that were not listed on a world stock ex-change for the full five years of our study or that did not have at least 25 percent of their shares available on public capital markets. We further refined the sample by organizing the remaining companies into 25 industry groups and establishing an appropriate market-valua-tion hurdle to eliminate the smallest compa-nies in each industry. (The size of the market valuation hurdle for each industry can be found in the tables in “Industry Rankings.”)

In addition to analyzing our 1,616-company comprehensive sample, we separately evalu-ated those companies with market valuations of more than $50 billion. We have included rankings for these large-cap companies in “Global Rankings.”

The global and industry rankings are based on five-year TSR performance from 2008 through 2012.1 We also show TSR perfor-mance for 2013, through May 30. In addition, for all but two of the industry rankings, we break down TSR performance into the six in-vestor-oriented financial metrics used in the

BCG TSR model: sales growth, margin change, multiple change, dividend yield, change in the number of shares outstanding, and change in net debt. For two industries—banking and insurance—we use a slightly dif-ferent approach to TSR disaggregation in or-der to deal with the analytical complexity of measuring value creation in those sectors.

The average annual TSR for the 1,616 compa-nies in our sample was approximately 4 per-cent. The average annual TSR for the 25 in-dustry sectors ranged from 11 percent (in retail and consumer nondurables) to –8 per-cent (in metals). (See Exhibit 1.)

As always, the leading companies in our sam-ple substantially outpaced not only their own industry average but also the total sample av-erage. The average TSR of the top ten compa-nies in each industry outpaced their industry averages by between 11 percentage points (in insurance) and 32 percentage points (in phar-maceuticals). (See Exhibit 2.) The lesson for executives is this: Coming from a sector with below-average market performance is no ex-cuse. No matter how bad an industry’s aver-age performance is relative to other sectors and to the market as a whole, it is still possi-ble for companies in that industry to deliver superior shareholder returns.

What kind of improvement in TSR was neces-sary to achieve truly superior performance,


given the sample average? A company had to deliver an average annual TSR of at least 12 percent per year to be in the top quartile of the global sample and at least 49.2 percent to make the top ten. The most successful compa-nies delivered TSR of more than 60 percent per year. This year’s top value creator—U.S. biopharma company Pharmacyclics—had an average annual TSR greater than 100 percent.

The rankings suggest four other broad trends of interest:

Companies from emerging markets •continue to dominate our global top ten, with the majority coming from countries such as Brazil, the Philippines, Russia, and Thailand. (See “Global Rankings.”)

When it comes to the world’s largest •companies, however, the balance shifts

back toward the developed world. Al-though this year’s number-one large-cap value creator is the Chinese online media company Tencent, seven of the top ten companies in this category are from developed-world economies—including familiar companies such as Danish pharmaceutical manufacturer Novo Nordisk at number three, South Korean powerhouse Samsung Electronics at number four, Spanish retailer Inditex at number five, and apple (by far, the company with the biggest market valua-tion on our list) at number six. (See “Global Rankings.”)

Despite below-average global GDP growth •in the years since the 2008 financial crisis, the winners in each of the 25 sectors that we studied found ways to deliver annual sales growth at rates considerably above

58 5569

39

109

48

67

4032 31

5848 53

44

24 28

53

24

3929 31

40 43

20

36

11 11 10 8 7 7 6 5 4 4 4 4 3 3 2 2 2 1 1 1 0–1 –2 –2 –8

–15–9

–31

–14 –14–27

–32–22

–32–18 –21

–14 –17 –20 –19 –21 –20

–38

–21–33

–18

–33–23

–48

–30

–60

–40

–20

0

20

40

60

80

100

120

Average annual TSR, 2008–2012 (%)

High

Low

Median

Chemicals

Mining

Consumernon-

durables

MetalsMediaand

publish-ing

Pharmaceuticals

Traveland

tourism

Telecom-munications

Retail

AutomotiveOEMs

Tech-nology

Construc-tion

Automotivecomponents

Consumerdurables and

apparel

Medicaltech-

nology

Trans-portation

andlogistics

Machin-ery

OilHealthcare

services

Multi-business

Buildingmaterials

Powerand gasutilities

Forestproducts

Banking Insurance

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; company disclosures; BCG analysis.

Exhibit 1 | The Range of TSR Performance by Industry Varies Widely


the average—from 6 percent per year, on average, for the top ten value creators in the forest products and multibusiness sectors to 27 percent per year for the top ten in the pharmaceutical and technology industries (as shown in Exhibit 2).

In some sectors, dividend yields were a •major contributor to top performance. For example, dividends accounted for roughly a quarter of the average TSR (24 percent) delivered by the oil industry’s top ten, more than a third of the average TSR (16 percent) delivered by the power and gas utilities top ten, and almost half of the

average TSR (9 percent) delivered by the insurance top ten (as shown in Exhibit 2).

note1. TSR is a dynamic ratio that includes price gains and dividend payments for a specific stock during a given period. To measure performance from 2008 through 2012, 2007 end-of-year data must be used as a starting point in order to capture the change from 2007 to 2008, which determines 2008 TSR. For this reason, all exhibits in the report showing 2008–2012 performance begin with a 2007 data point.

= + +

91516161718181920212123232424252526262626282933

39

Power and gas utilitiesMining

MultibusinessBanking

MetalsConstruction

Automotive componentsMachinery

TechnologyBuilding materials

Medical technologyOil

Health care servicesAutomotive OEMs

Media and publishingTravel and tourism

Consumer durables and apparelTransportation and logistics

ChemicalsConsumer nondurables

RetailPharmaceuticals

TelecommunicationsForest products

Insurance 56

811

186

1812101010

2789

2117151316

2219

101211

27

40

–2–6

01

–315

158

–18

226

100

–5427

3

–2—47569

–16

–231

93

–1–1–2

56

179107

23

–15

4456

33353

4

4

6435334353

3–4–8

–1–3–1

–3–1

–3

0–1

00

–3–3–2–1–2

–12

–14

–11

1100

–1

0–3

51222

04522

02111

–5

TSR1

(%)

Salesgrowth2

(%)

Marginchange3

(%)

Multiplechange4

(%)

Dividendyield(%)

Sharechange

(%)

Net debt,change5

(%)

Value creation

Fundamental value

Valuationmultiple

Cash flow contribution

2

1

1

2

0

0

—

—

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: TsR disaggregation is shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.1Five-year average annual TsR (2008–2012) for weighted average of respective sample.2equity growth was used for the banking and insurance industries.3Change in return on equity was used for the banking industry; no equivalent value is available for the insurance industry.4eBITdA multiple was used for all industries except for banking and insurance, where P/e multiples and price-to-book (P/B) multiples were used, respectively.5not available for banking and insurance.

Exhibit 2 | The Top Ten in Each Industry Delivered Above-Average Sales Growth

gloBal raNkiNgSToTaL GLoBaL SampLe

LaRGe-Cap CompaNieS


The Large-Cap Top Ten, 2008–2012

The Global Top Ten, 2008–2012

TSR Disaggregation1

# Company Location2 IndustryTSR3 (%)

Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield (%)

Share change6

(%)

Net debt

change (%)

2013 TSR7

(%)

1 Pharmacyclics United states Pharmaceuticals 109.0 4.0 n/A8 59

2 Celltrion south Korea Pharmaceuticals 71.7 4.3 41 14 14 0 –23 25 –29

3 Companhia Hering Brazil Consumer durables and apparel 68.9 3.4 32 37 –5 6 0 –1 –7

4 Catamaran Canada Technology 66.6 9.7 154 –72 9 0 –16 –8 9 5 CP All Thailand Retail 58.1 13.8 11 33 10 5 0 –2 –7 6 Aboitiz equity Ventures Philippines Multibusiness 57.6 7.2 28 8 19 8 1 –5 2 7 Charoen Pokphand Foods Thailand Consumer nondurables 54.8 8.8 22 3 17 7 –1 7 –14 8 Aboitiz Power Philippines Power and gas utilities 53.3 6.7 41 17 –4 6 0 –7 –3

9 Bashneft Russia Oil 52.7 11.0 39 –5 8 18 –2 –6 15

10 Haier Hong Kong Consumer durables and apparel 49.2 3.6 46 –6 10 1 –5 3 19

TSR Disaggregation1

# Company Location2 IndustryTSR3 (%)

Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield (%)

Share change6

(%)

Net debt

change (%)

2013 TSR7

(%)

1 Tencent Hong Kong Media and publishing 33.8 59.5 63 –5 –24 1 –1 0 22 2 AmBev Brazil Consumer nondurables 32.5 131.1 10 7 8 5 0 2 –3

3 novo nordisk denmark Pharmaceuticals 24.4 88.6 13 9 –2 2 3 0 3

4 samsung electronics south Korea Technology 23.4 188.1 17 –1 7 1 –1 0 1 5 Inditex spain Retail 22.9 87.4 11 2 7 3 0 0 –5 6 Apple United states Technology 22.1 499.8 45 21 –46 0 –1 4 –14 7 Amazon.com United states Retail 22.0 113.9 33 –7 –3 0 –1 0 22 8 Home depot United states Retail 21.8 91.8 –1 1 12 4 3 3 31

9 Walmart de México Mexico Retail 19.2 59.4 13 0 6 2 –1 0 –14

10 sABMiller United Kingdom Consumer nondurables 17.6 75.5 2 3 11 3 –2 1 15

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 1,616 global companies.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.8TsR disaggregation is not possible because this company had negative eBITdA in either the start year or the end year of the analysis.

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 137 global companies with a market valuation of at least $50 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed. 3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.


iNDUStry raNkiNgSaUTomoTiVe CompoNeNTS

The Automotive Components Top Ten, 2008–2012

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 63 global companies with a market valuation of at least $1 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed. 3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 37 global companies with a market valuation of at least $4 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.8TsR disaggregation is not possible because this company had negative eBITdA in either the start year or the end year of the analysis.

aUTomoTiVe oemSThe Automotive OEM Top Ten, 2008–2012

TSR Disaggregation1

# Company Location2TSR3 (%)

Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 dorman Products United states 38.9 1.3 12 10 15 2 –1 1 26 2 nexen Tire south Korea 32.4 1.4 19 –5 17 1 0 0 3 3 Cheng shin Rubber Industries Taiwan 27.9 7.3 8 –2 18 3 0 1 21 4 Motherson sumi systems India 22.6 2.1 66 –19 –20 2 –2 –4 8 5 TRW Automotive United states 20.7 6.4 2 3 3 0 –3 16 18 6 Plastic Omnium France 16.7 1.5 12 0 –8 5 2 5 85 7 exide Industries India 15.2 2.2 16 –5 1 2 –1 2 –4 8 lKQ United states 15.0 6.3 30 0 –13 0 –2 1 16 9 Unipres Japan 14.3 1.0 4 0 3 2 –3 9 –3 10 Mekonomen sweden 13.1 1.1 16 3 –4 7 –3 –6 2

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Great Wall Motor China 44.0 9.6 41 4 1 5 –2 –5 54 2 Kia Motors south Korea 42.3 21.6 12 19 –4 2 –3 16 6

3 Brilliance China Automotive Hong Kong 40.5 6.2 n/A8 –8

4 Astra International Indonesia 27.3 31.9 22 –2 4 5 0 –1 –5

5 Hero MotoCorp India 26.5 6.9 18 1 5 4 0 –2 –9

6 Hyundai Motor south Korea 26.4 43.2 7 8 2 1 0 8 –2 7 Tata Motors India 19.1 18.2 40 4 –24 3 –9 5 0 8 Mahindra & Mahindra India 18.7 10.0 31 –10 –1 2 –4 1 4 9 dongfeng Motor China 18.4 13.3 16 4 –10 2 0 6 1 10 Fuji Heavy Industries Japan 17.0 9.5 4 2 0 1 –2 11 105


BaNkiNG

The Banking Top Ten, 2008–2012

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 76 global companies with a market valuation of at least $15 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in price-to-earnings (P/e) multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 53 global companies with a market valuation of at least $2.5 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.8TsR disaggregation is not possible because this company had negative eBITdA in either the start year or the end year of the analysis.

BUiLDiNG maTeRiaLSThe Building Materials Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 China Fortune land development China 48.3 4.0 n/A8 22 2 Asian Paints India 33.8 7.8 20 1 10 2 0 1 10

3 shree Cement India 29.4 3.0 21 –10 13 2 0 4 7

4 semen Indonesia Indonesia 27.3 9.7 15 4 6 5 0 –2 14

5 Valspar United states 25.4 5.6 4 4 8 3 2 4 16

6 Indocement Tunggal Prakarsa Indonesia 24.2 8.6 19 6 –7 2 0 4 1 7 Watsco United states 21.5 2.6 14 1 7 6 –4 –3 17 8 siam Cement Thailand 18.6 17.7 9 –11 14 5 0 2 6 9 Cementos Argos Colombia 18.5 6.2 3 0 10 2 1 3 –22 10 Armstrong World Industries United states 18.0 3.0 –6 3 12 13 –1 –3 2

TSR Disaggregation1


Market value4

($billions)

Equity growth

(%)

ROEchange

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)2013 TSR7

(%)

1 Grupo Financiero Inbursa Mexico 24.0 20.7 14 –2 13 1 –2 –25 2 Bank Central Asia Indonesia 22.7 23.1 20 1 –1 3 0 10 3 Bank Mandiri Indonesia 22.4 19.6 21 8 –8 4 –2 21 4 Kasikornbank Thailand 20.3 15.5 13 6 –2 3 0 3 5 siam Commercial Bank Thailand 19.4 20.6 14 4 8 4 –11 –3 6 FirstRand south Africa 18.5 19.2 9 –6 11 6 –1 –3 7 Qatar national Bank Qatar 17.4 25.2 28 –1 –10 4 –4 16 8 Bank Rakyat Indonesia Indonesia 16.2 17.8 27 4 –18 3 0 28 9 HdFC Bank India 15.2 29.5 26 8 –14 1 –6 3 10 CIMB Group Malaysia 9.9 18.8 12 –3 –1 4 –2 11


CHemiCaLS

The Chemicals Top Ten, 2008–2012

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 106 global companies with a market valuation of at least $2 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 67 global companies with a market valuation of at least $2.5 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.8TsR disaggregation is not possible because this company had negative eBITdA in either the start year or the end year of the analysis.

CoNSTRUCTioNThe Construction Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Mexichem Mexico 39.8 12.0 22 3 13 2 –4 4 –18 2 Croda International United Kingdom 36.2 5.3 6 15 5 4 0 7 5

3 Westlake Chemical United states 35.8 5.3 2 20 3 3 –1 7 18

4 synthos Poland 35.6 2.3 27 19 –15 3 0 2 14

5 lG Chem south Korea 31.7 20.5 18 –1 8 2 3 2 –17

6 sQM Chile 28.2 15.2 15 10 0 3 0 0 –15 7 sherwin-Williams United states 24.0 15.9 4 -4 16 2 4 2 23 8 Victrex United Kingdom 21.6 2.2 11 2 5 4 –1 1 7 9 Eastman Chemical United states 21.0 10.5 3 3 14 4 1 –4 6 10 W.R. Grace United states 20.8 5.1 0 10 12 0 –1 –1 26

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 suzhou Gold Mantis China 42.7 5.5 32 24 –12 1 –2 0 3 2 Arteris Brazil 36.5 3.2 38 –18 13 4 0 0 12

3 China state Construction Hong Kong 30.3 4.7 14 19 6 4 –7 –6 35

4 Petrofac United Kingdom 28.8 8.8 21 3 5 3 0 –3 –15

5 China CAMC engineering China 23.9 3.0 55 7 –39 2 –5 4 4

6 lennar United states 18.4 7.4 n/A8 2 7 Jiangsu zhongnan Construction China 15.9 2.6 29 22 –15 0 –17 –3 –16 8 samsung engineering south Korea 14.3 5.8 36 4 –25 2 1 –4 –42 9 Bilfinger Germany 13.4 4.3 0 17 –11 5 –2 4 16 10 Technip France 12.4 12.8 1 18 –2 3 –1 –6 1


CoNSUmeR DURaBLeS aND appaReL

The Consumer Durables and Apparel Top Ten, 2008–2012


Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 75 global companies with a market valuation of at least $8 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.8Grupo Modelo was acquired by Anheuser-Busch InBev in June 2013.

CoNSUmeR NoNDURaBLeSThe Consumer Nondurables Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Companhia Hering Brazil 68.9 3.4 32 37 –5 6 0 –1 –7 2 Haier Hong Kong 49.2 3.6 46 –6 10 1 –5 3 19

3 shenzhou International Hong Kong 45.0 3.0 20 8 2 13 –1 4 48

4 Titan Industries India 30.4 4.6 27 5 –4 1 0 1 3

5 lululemon Athletica United states 26.3 8.6 38 9 –19 0 –4 1 2

6 nCsoft south Korea 26.3 2.8 16 0 12 1 0 –3 5 7 PVH United states 25.1 8.1 20 –3 14 0 –5 –2 4 8 Carter’s United states 23.5 3.3 11 0 7 0 0 6 30 9 Hermès International France 22.8 31.3 16 5 0 2 0 0 22 10 Hugo Boss Germany 21.2 7.3 8 5 1 7 0 1 9

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Charoen Pokphand Foods Thailand 54.8 8.8 22 3 17 7 –1 7 –14 2 souza Cruz Brazil 34.4 23.1 5 8 13 8 0 0 –4

3 natura Cosméticos Brazil 34.3 12.3 16 1 11 7 0 0 –12

4 Arca Continental Mexico 33.2 12.3 25 –4 10 13 –8 –2 9

5 AmBev Brazil 32.5 131.1 10 7 8 5 0 2 –3

6 lG Household & Health Care south Korea 28.6 9.1 13 2 12 1 0 1 –5 7 Femsa Mexico 27.0 36.6 10 –4 15 2 0 4 8 8 ITC ltd. India 25.2 41.4 16 3 4 3 –1 0 20 9 estée lauder United states 23.9 23.3 7 5 9 2 0 2 14 10 Grupo Modelo8 Mexico 20.8 29.7 6 –1 12 3 0 0 1


FoReST pRoDUCTS

The Forest Products Top Ten, 2008–2012



HeaLTH CaRe SeRViCeSThe Health Care Services Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Rock-Tenn United states 24.1 5.0 32 0 5 2 –12 –2 42 2 RPC Group United Kingdom 23.2 1.1 9 7 2 5 -6 6 1

3 Klabin Brazil 18.9 5.6 8 12 –8 5 0 2 2

4 West Fraser Timber Canada 16.3 3.0 –2 25 –14 1 0 6 10

5 Huhtamaki Finland 14.1 1.7 0 2 –2 6 1 7 24

6 BillerudKorsnäs sweden 13.9 1.3 6 –4 19 3 –8 –2 6 7 nampak south Africa 13.7 2.1 1 1 4 6 2 0 13 8 Canfor Canada 13.7 2.4 n/A8 5 9 Mondi United Kingdom 13.4 5.2 –2 3 5 4 1 2 33 10 ds smith United Kingdom 12.1 3.0 6 0 15 5 –9 –5 20

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 KPJ Healthcare Malaysia 38.9 1.2 14 1 18 5 –4 6 16 2 Odontoprev Brazil 35.9 2.8 30 –6 7 18 –10 –3 –4

3 Bangkok dusit Medical services Thailand 30.4 5.9 20 –2 11 3 –5 3 49

4 Apollo Hospitals India 25.7 2.0 25 –1 3 1 –3 0 28

5 Mediclinic International south Africa 24.5 5.0 21 0 –7 3 –4 12 31

6 Ramsay Health Care Australia 23.6 5.8 14 1 3 4 –3 5 26 7 Ryman Healthcare new zealand 21.5 1.9 19 5 –8 5 0 1 45 8 Air Methods United states 18.9 1.4 17 16 –10 2 –1 –4 1 9 HMs Holdings United states 18.5 2.3 26 5 –9 0 –3 –2 –4 10 Bumrungrad International Hospital Thailand 15.9 1.8 9 1 1 3 0 1 11


iNSURaNCe

The Insurance Top Ten, 2008–2012

Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 39 global companies with a market valuation of at least $10 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in price-to-book (P/B) multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.


maCHiNeRyThe Machinery Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Transdigm Group United states 31.2 7.0 23 1 –1 8 –2 2 7 2 Kone Finland 23.0 19.0 9 9 –1 5 0 1 26

3 Andritz Austria 22.2 6.7 10 2 4 5 0 2 –11

4 safran France 21.4 18.0 7 6 5 3 0 0 26

5 Weir Group United Kingdom 21.2 6.4 20 11 –12 4 0 –2 26

6 Fastenal United states 20.9 13.8 9 3 6 3 0 0 13 7 W.W. Grainger United states 20.4 14.1 7 3 6 2 3 0 28 8 Weichai Power China 19.4 8.9 11 –7 13 1 0 2 –19 9 zodiac Aerospace France 18.3 6.3 11 1 –3 4 –1 5 24 10 United Tractors Indonesia 17.8 7.6 25 8 –17 4 –4 1 –17

TSR Disaggregation1


Market value4

($billions)

Equity growth

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)2013 TSR7

(%)

1 sanlam south Africa 19.8 9.8 5 8 5 1 11 2 sampo Finland 12.6 18.1 6 0 7 1 36 3 standard life United Kingdom 12.0 12.5 6 1 7 –2 26 4 Fubon Financial Taiwan 10.5 11.5 12 –4 3 –1 12 5 Chubb United states 9.5 19.7 2 –3 3 7 16 6 Travelers Companies United states 8.9 27.1 –1 –4 3 11 17 7 Prudential United Kingdom 7.9 35.4 11 –7 4 –1 32 8 ACe United states 7.8 27.2 11 –5 3 –1 13 9 legal & General United Kingdom 7.5 13.8 0 1 5 1 27 10 Insurance Australia Australia 7.2 10.2 –1 7 5 –3 21


meDia aND pUBLiSHiNG

The Media and Publishing Top Ten, 2008–2012



meDiCaL TeCHNoLoGyThe Medical Technology Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 starz United states 48.0 1.6 n/A8 74 2 Tencent Hong Kong 33.8 59.5 63 –5 –24 1 –1 0 22

3 naspers south Africa 28.4 23.7 16 –8 19 1 –1 1 37

4 Media nusantara Citra Indonesia 27.8 3.6 17 4 4 3 0 1 27

5 Time Warner Cable United states 26.3 28.9 6 0 –1 22 2 –3 0

6 BeC World Public Thailand 26.0 4.8 14 –2 8 6 0 –1 –9 7 discovery Communications United states 22.1 19.3 n/A8 24 8 Baidu United states 20.8 35.1 66 10 –57 0 0 1 –4 9 Global Mediacom Indonesia 19.0 3.4 14 5 –4 2 0 3 4 10 dentsu Aegis network United Kingdom 17.9 4.4 2 4 11 2 –3 2 2

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 elekta sweden 32.3 5.9 14 6 10 2 –1 1 0 2 Cyberonics United states 31.9 1.5 n/A8 –9

3 edwards lifesciences United states 31.4 10.3 12 4 15 0 0 1 –26

4 Coloplast denmark 27.5 10.4 7 8 7 2 1 3 20

5 diasorin Italy 20.0 2.2 16 7 –7 2 0 2 3

6 Cooper Companies United states 19.6 4.5 9 14 –9 0 –2 7 22 7 sartorius stedim Biotech France 16.6 1.7 15 16 –19 2 0 3 37 8 Carl zeiss Meditec Germany 15.9 2.4 9 3 6 3 0 –4 16 9 Thoratec United states 15.6 2.2 16 33 –33 0 –1 1 –17 10 Gn store nord denmark 15.5 2.5 1 6 2 0 4 3 35


meTaLS

The Metals Top Ten, 2008–2012



miNiNGThe Mining Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Hyundai Hysco south Korea 36.5 3.4 14 6 1 1 0 14 –21 2 Inner Mongolia Baotou steel Rare-earth China 36.0 14.6 30 –5 11 0 0 –1 –26

3 Korea zinc south Korea 27.3 6.8 14 –6 16 2 0 1 –20

4 KGHM Poland 26.1 12.3 15 –5 –4 23 0 –2 –22

5 Industrias CH Mexico 21.9 3.4 3 1 15 6 0 –3 –6

6 Aurubis Germany 19.7 3.2 16 –1 0 5 –4 4 –11 7 Xiamen Tungsten China 13.1 4.3 13 11 –13 1 0 1 –16 8 CAP Chile 6.1 5.0 9 10 –14 3 0 –2 –21 9 Reliance steel & Aluminum Co. United states 3.9 4.7 3 –3 3 1 0 0 7 10 Volcan Peru 3.4 3.5 2 –8 0 11 0 –1 –47

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Industrias Peñoles Mexico 31.4 20.5 17 10 –5 9 0 1 –25 2 Randgold Resources United Kingdom 26.8 8.8 36 17 –21 0 –4 –3 –12

3 Grupo México Mexico 21.0 28.8 7 –6 17 3 1 –1 –8

4 Antofagasta United Kingdom 17.6 20.9 12 –8 10 5 0 –1 –24

5 eldorado Gold Canada 17.5 9.3 45 9 –23 0 –14 0 –34

6 silver Wheaton Canada 16.8 12.9 37 7 –22 0 –9 3 –31 7 exxaro Resources south Africa 14.1 6.9 4 –4 11 4 0 –1 –5 8 shandong Gold Mining China 12.9 8.7 35 –1 –18 0 –2 –1 –16 9 yamana Gold Canada 6.9 13.1 26 1 –19 1 –2 0 –28 10 Inner Mongolia yitai Coal China 6.1 9.3 44 –1 –39 4 –2 0 –8


mULTiBUSiNeSS

The Multibusiness Top Ten, 2008–2012



oiLThe Oil Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Aboitiz equity Ventures Philippines 57.6 7.2 28 8 19 8 1 –5 2 2 Alfa Mexico 33.3 11.3 13 5 8 3 0 5 11

3 Grupo Carso Mexico 31.6 11.3 2 –4 34 2 0 –3 8

4 Remgro south Africa 24.2 9.3 11 –12 25 3 –2 –1 25

5 Jardine Matheson singapore 20.8 22.9 15 0 11 4 –5 –4 7

6 Bidvest Group south Africa 16.0 7.6 7 3 2 4 –1 2 22 7 Fraser and neave singapore 13.9 11.3 –5 1 10 4 –1 5 –8 8 Wharf Hong Kong 11.5 23.7 14 –1 0 3 –4 –1 16 9 Tyco International United states 10.9 13.5 –11 –2 16 3 1 4 17 10 dover United states 9.9 11.5 2 3 0 3 2 0 20

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Bashneft Russia 52.7 11.0 39 –5 8 18 –2 –6 15 2 Concho Resources United states 31.3 8.4 44 4 –8 0 –6 –3 4

3 Kunlun energy Hong Kong 29.2 16.8 54 4 –17 5 –10 –6 –7

4 Inter Pipeline Fund Canada 29.2 6.6 1 12 3 10 –4 8 0

5 lundin Petroleum sweden 22.8 7.1 11 6 3 0 0 3 –7

6 Pacific Rubiales energy Canada 22.5 7.5 117 1 –74 1 –18 –5 –5 7 Magellan Midstream United states 22.2 9.8 6 7 11 8 –10 0 23 8 enbridge Canada 20.4 35.1 16 –7 10 4 –2 –1 6 9 Turkiye Petrol Rafinerileri Turkey 20.1 7.3 16 –16 10 13 0 –3 5 10 Cabot Oil & Gas United states 20.1 10.4 10 1 10 0 –1 0 42


pHaRmaCeUTiCaLS

The Pharmaceuticals Top Ten, 2008–2012



poweR aND GaS UTiLiTieSThe Power and Gas Utilities Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Pharmacyclics United states 109.0 4.0 n/A8 59 2 Celltrion south Korea 71.7 4.3 41 14 14 0 –23 25 –29

3 Medivation United states 48.0 3.8 n/A8 –5

4 Regeneron Pharmaceuticals United states 47.9 16.6 n/A8 41

5 Valeant Pharmaceuticals Canada 41.7 18.3 33 2 25 6 –12 –12 61

6 lupin India 38.6 5.0 28 1 7 1 –2 3 20 7 Alexion Pharmaceuticals United states 38.0 18.3 n/A8 4 8 Cadila Healthcare India 36.6 3.4 22 –2 15 1 –2 1 –14 9 Aspen Pharmacare south Africa 36.1 8.7 31 –2 16 1 –3 –7 23 10 Kalbe Farma Indonesia 35.4 5.1 14 –1 18 2 1 0 35

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Aboitiz Power Philippines 53.3 6.7 41 17 –4 6 0 –7 –3 2 Ultrapar Brazil 30.4 12.2 22 3 –2 6 0 1 18

3 Manila Electric Philippines 29.2 7.2 7 16 –7 4 0 9 51

4 Companhia energetica de Minas Gerais Brazil 14.9 9.4 12 –7 3 11 0 –5 8

5 Power Assets Hong Kong 12.8 18.2 –4 –2 16 5 0 –2 7

6 Canadian Utilities Canada 12.6 9.4 5 1 6 3 –1 –3 7 7 CPFl energia Brazil 12.4 10.1 10 –8 8 8 0 –5 8 8 Wisconsin energy United states 12.0 8.4 0 7 –1 3 0 2 13 9 dTe energy United states 11.9 10.3 1 6 –2 6 –1 3 12 10 nisource United states 11.6 7.7 –8 10 4 6 –2 2 17


ReTaiL

The Retail Top Ten, 2008–2012



TeCHNoLoGyThe Technology Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 CP All Thailand 58.1 13.8 11 33 10 5 0 –2 –7 2 BİM Birleşik Mağazalar Turkey 40.7 7.5 27 –2 13 3 0 0 3

3 shoprite south Africa 40.6 12.4 16 6 15 4 0 –1 –13

4 dollar Tree United states 36.2 9.1 12 6 13 0 4 2 18

5 Ross stores United states 34.9 11.9 10 12 7 2 4 0 19

6 Magnit Russia 31.6 14.9 31 16 –13 1 –5 1 51 7 l Brands United states 31.1 13.6 1 10 3 13 4 1 7 8 Family dollar stores United states 29.1 7.3 6 5 13 2 4 –1 –3 9 TJX Companies United states 25.9 30.7 7 7 5 2 3 1 20 10 Petsmart United states 25.2 7.2 8 3 7 1 4 3 –1

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Catamaran Canada 66.6 9.7 154 –72 9 0 –16 –8 9 2 ARM United Kingdom 45.7 17.0 17 10 17 2 –1 0 29

3 samsung electronics south Korea 23.4 188.1 17 –1 7 1 –1 0 1

4 Cerner United states 22.4 13.3 12 5 6 0 –1 1 27

5 Apple United states 22.1 499.8 45 21 –46 0 –1 4 –14

6 salesforce.com United states 21.8 24.6 32 –8 2 0 –4 –1 1 7 Tata Consultancy services India 20.8 44.9 23 3 –8 3 0 0 20 8 Red Hat United states 20.5 10.2 21 0 1 0 0 –1 –9 9 AsMl Holding netherlands 18.0 26.0 4 3 7 2 1 1 35 10 Teradata United states 17.7 10.3 9 3 3 0 2 0 –10


TeLeCommUNiCaTioNS

The Telecommunications Top Ten, 2008–2012


Sources: Thomson Reuters datastream; Thomson Reuters Worldscope; Bloomberg; annual reports; BCG analysis.Note: n = 103 global companies with a market valuation of at least $1.5 billion.1Contribution of each factor shown in percentage points of five-year average annual TsR; any apparent discrepancies in TsR totals are due to rounding.2location refers to the location of the primary stock exchange on which the company’s shares are listed.3Average annual TsR, 2008–2012.4As of december 31, 2012.5Change in eBITdA multiple.6“share change” refers to the change in the number of shares outstanding, not to the change in share price.7As of May 30, 2013.

TRaNSpoRTaTioN aND LoGiSTiCSThe Transportation and Logistics Top Ten, 2008–2012

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Advanced Info service Thailand 28.2 20.8 5 1 8 11 0 1 29 2 diGi.Com Malaysia 25.0 13.6 8 –1 11 9 –1 0 –11

3 Taiwan Mobile Taiwan 19.8 9.9 6 –10 14 9 0 1 2

4 Virgin Media United states 17.8 9.9 0 6 0 2 4 6 35

5 sBA Communications United states 16.0 9.0 19 5 –4 0 –3 –1 6

6 Far easTone Telecom Taiwan 15.5 8.3 9 –7 6 7 0 0 –4 7 American Tower United states 13.1 30.5 15 –1 –1 0 0 0 1 8 Iliad France 12.6 10.0 21 –5 0 1 –1 –2 24 9 Telefônica Brasil Brazil 11.8 27.0 18 –3 –1 10 –15 2 14 10 Crown Castle International United states 11.6 21.2 12 6 –5 0 –1 0 –1

TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Hyundai Glovis south Korea 29.3 7.8 30 6 –17 1 0 10 –17 2 CCR Brazil 28.7 16.8 20 –4 9 6 –2 –1 1

3 Old dominion Freight line United states 27.3 3.0 9 5 11 0 –1 3 26

4 Jasa Marga Indonesia 26.7 3.8 28 –10 5 4 0 0 21

5 Genesee & Wyoming United states 25.8 3.6 11 7 18 0 –6 –5 17

6 Vopak netherlands 25.2 9.0 9 4 9 3 0 0 –11 7 Imperial south Africa 24.8 4.7 8 –2 6 5 0 8 8 8 World Fuel services United states 23.8 3.0 23 3 3 1 –5 –1 –1 9 Westshore Terminals Canada 23.5 2.1 9 0 6 10 0 –1 8 10 TransForce Canada 23.5 1.9 10 0 3 7 –1 5 2


TRaVeL aND ToURiSm

The Travel and Tourism Top Ten, 2008–2012


TSR Disaggregation1


Market value4

($billions)

Sales growth

(%)

Margin change

(%)

Multiple change5

(%)

Dividend yield(%)

Share change6

(%)

Net debt change

(%)

2013 TSR7

(%)

1 Priceline.com United states 40.1 30.9 30 30 –18 0 –5 3 30 2 Turkish Airlines Turkey 39.7 4.3 27 –9 18 7 0 –3 41

3 Galaxy entertainment Hong Kong 32.9 16.4 34 19 –19 0 –1 0 36

4 Alaska Air United states 28.1 3.0 6 9 3 0 2 9 32

5 Paddy Power Ireland 26.1 4.1 19 –6 11 4 –1 –1 5

6 Wyndham Worldwide United states 19.9 7.3 1 3 6 3 5 3 10 7 InterContinental Hotels United Kingdom 19.1 7.3 1 3 4 6 2 4 13 8 expedia United states 16.6 8.3 9 –7 8 1 1 4 –6 9 Cinemark United states 14.7 3.0 8 1 –4 7 –1 4 14 10 latam Airlines Chile 13.3 11.3 22 –9 10 4 –7 –7 –20


The Boston Consulting Group publishes many reports and articles on corporate development and value creation that may be of interest to senior executives. examples include:

BRICs Versus Mortar? Winning at M&A in Emerging MarketsA report by The Boston Consulting Group, August 2013

The Art of Risk ManagementA Focus by The Boston Consulting Group, April 2013

Divide and Conquer: How Successful M&A Deals Split the SynergiesA Focus by The Boston Consulting Group and Technische Universität München, March 2013

Corporate Venture Capital: Avoid the Risk, Miss the RewardsA Focus by The Boston Consulting Group, October 2012

Improving the Odds: Strategies for Superior Value CreationThe 2012 Value Creators Report, september 2012

Plant and Prune: How M&A Can Grow Portfolio ValueA report by The Boston Consulting Group, August 2012

Enabling PMI: Building Capabilities for Effective IntegrationA Focus by The Boston Consulting Group, July 2012

How Value Patterns WorkBCG Perspectives, June 2012

Value Patterns: The ConceptBCG Perspectives, May 2012

The CEO as InvestorBCG Perspectives, March 2012

First, Do No Harm: How to Be a Good Corporate ParentA report by The Boston Consulting Group, March 2012

The Power of Diversified Companies During CrisesA report by The Boston Consulting Group and HHl—leipzig Graduate school of Management, January 2012

M&A: Using Uncertainty to Your AdvantageA Focus by The Boston Consulting Group and UBs Investment Bank, december 2011

No Time Like the Present to Plan an IPOA report by The Boston Consulting Group, October 2011

Risky Business: Value Creation in a Volatile EconomyThe 2011 Value Creators Report, september 2011

Riding the Next Wave in M&A: Where Are the Opportunities to Create Value?A report by The Boston Consulting Group, June 2011

The Art of PlanningA Focus by The Boston Consulting Group, April 2011

Does Practice Make Perfect? How the Top Serial Acquirers Create ValueA Focus by The Boston Consulting Group and HHl—leipzig Graduate school of Management, April 2011

for fUrther reaDiNg


Note to the reaDer

About the AuthorsGerry Hansell is a senior partner and managing director in the Chicago office of The Boston Consulting Group and a BCG Fellow. Jeff Kotzen is a senior partner and managing director in the firm’s new Jersey office and BCG’s global leader for value creation strategy. Eric Olsen is a senior advisor to the firm’s Corporate development practice. Frank Plaschke is a partner and managing director in BCG’s Munich office and the firm’s leader for value creation strategy in europe. Hady Farag is a principal in BCG’s Hamburg office and manager of the firm’s Munich-based Value Creators research team.

AcknowledgmentsThis report is a product of BCG’s Corporate development practice. The authors would like to acknowledge, first, the extraordinary contributions of their former BCG colleague, and founder of the Value Creators series, daniel stelter. They would also like to thank the following BCG global experts in corporate development: danny Friedman, a senior partner and managing director in the firm’s los Angeles office and leader of the Corporate development practice in north America; Jérôme Hervé, a senior partner and managing director in the firm’s Paris office and leader of the Corporate development practice in Western europe and south America; dinesh Khanna, a partner and managing director in the firm’s singapore office and leader of the Corporate development practice in the Asia-Pacific region; Jens Kengelbach, a partner and managing director in the firm’s Munich office and global head of marketing for the Corporate

development practice; Alexander Roos, a senior partner and managing director in the firm’s Berlin office and global leader of the Corporate development practice; and Brett schiedermayer, managing director of the BCG Valuescience Center in south san Francisco, California, a research center that develops leading-edge valuation tools and techniques for M&A and corporate-strategy applications.

Finally, the authors would like to thank Robert Howard for his contributions to the concep- tualization and writing of this report; Kerstin Hobelsberger and Philippe dehillotte of the Value Creators research team for their contributions to the research; and simon Targett, Katherine Andrews, Gary Callahan, Angela diBattista, Kim Friedman, Pamela Gilfond, and sara strassenreiter for their contributions to the editing, design, and production.

For Further ContactFor further information about the report or to learn more about BCG’s capabilities in corporate develop-ment and value management, you may contact one of the authors.

Gerry HansellSenior Partner and Managing DirectorBCG Chicago+1 312 993 [email protected]

Jeff KotzenSenior Partner and Managing DirectorBCG new Jersey+1 973 218 [email protected]

Eric OlsenSenior AdvisorBCG Chicago+1 312 993 [email protected]

Frank PlaschkePartner and Managing DirectorBCG Munich+49 89 23 17 [email protected]

Hady FaragPrincipalBCG Hamburg+49 40 30 99 [email protected]

The financial analyses in this report are based on public data and forecasts that have not been verified by BCG and on assumptions that are subject to uncertainty and change. The analyses are intended only for general comparisons across companies and industries and should not be used to support any individual investment decision.

© The Boston Consulting Group, Inc. 2013. All rights reserved.

For information or permission to reprint, please contact BCG at:e-mail: [email protected]: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon street Boston, MA 02108 UsA

To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.

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